Cournot equilibrium revisited (Q2203475)

In this paper properties of the Cournot equilibrium are studied when the profits are not concave. Using a special demand function p with variable parameters, remarkable properties of the Cournot equilibrium (with respect to existence, unity, welfare losses, Laffer curve, tax reform) are shown and thoroughly interpreted economically. For this purpose the authors study the demand function \( p=A - bx^{\beta},\) where \(p\) is the market price, \(x\) is the aggregate output, \(A,b,\beta\) are parameters and \(n\) is the number of (identical) firms. Chapter 1 of the paper gives relations of the considered problems and results to known ones from the literature. Chapter 2 (The model) discusses relations between the parameters w. r. to the aim of the paper. In Chapter 3 (Existence and stability of the equilibrium) it is proved that a Cournot equilibrium is existing iff the condition \( n + \beta > 0\) holds. Furthermore a stability condition is shown for an existing equilibrium and the situation is discussed for big \(n\). Two figures show numerical results (marginal profit, best reply). Chapter 4 contains results w. r. to social welfare. Therefore a consumer is considered with utility function \(U\). Maximizing \(U\) under the constraint that profits are larger or equal to a certain value and discussing the results, one gets such things as huge welfare losses. Chapters 5 and 6 contain results w. r. to shapes of Laffer curves and to different aspects of tax reforms (e. g. Pareto improving tax reform, role of variation of \(\beta\) in such problems. Chapter 7 (Conclusions) contains a ``pros and cons'' of discussions as in this paper. There is an Appendix where one finds existence and uniqueness conditions for Cournot equilibrium problems, which are more general than those considered above.